Markets Overview: (Source: Bloomberg, FT, Reuters, DJ Newswires)

  UK 100 called to open flat at 6730, remaining in the tight 6700-6740 range we talked of yesterday. Asia mixed after a flat US finish (although DJIA at another record high) on account of a public holiday, with Japan’s Nikkei outperforming again thanks to a weaker JPY (stronger USD), and despite a sharp drop in Consumer Confidence, possibly helped by a strong rebound in Machine Tool Orders.

 Plenty of focus on China, with today being the last day of the four day political meeting to decide on the an economic plan for the next decade. In tandem, the FT ran a story yesterday suggesting the world’s #2 economy may cuts its GDP forecast to 7%, a signal of determination to push through reforms and willingness to accept slower growth. Could this be announced today?

 In Europe, the ECB/Bundesbank’s Weidman (he at odds with Draghi) said banks should be forced to risk weight government bonds to limit exposure to individual sovereigns. French investment bank BNP Paribas also called for €50bn/month QE by the ECB.

 US markets pushed on to more record highs as investors price in the economy having he potential to withstand a reduction in QE3 stimulus by the Fed. The Fed’s fisher also said that QE3 can’t last forever. Note several other Fed speakers this week including the Chairwoman elect Janet Yellen testifying which some see providing more upside the USD.

 While markets look to the possibility of the Fed cutting back and seeing the USD rally, other talk of a race to the bottom elsewhere as central banks ease anew with dovish talk if not intervention in order to maintain competitiveness and support their economic recovery.

 The Financial Stability Board has published its new list of banks regarded as too-big-to-fail, with JPMorgan and HSBC at the top of the 2.5% surcharge bracket (need to hold additional capital) while Deutsche Bank and Citigroup dropped down the list. China’s ICBC also joined the list but already holds enough capital on account of stricter domestic regulations.

 Data of note overnight comprised a slightly weaker surge in RICS House Price Balance (good news perhaps?) and a sharp drop in Australian Business Confidence, albeit from a 3yr high, which added to pressure on the AUD. This morning, we’ve also had more evidence of why the ECB may have cut rates, with German CPI confirmed as deflationary in October and well below target over the year, and Wholesale prices falling significantly. If that’s the case in the North of the Eurozone….

 In focus today we have UK Consumer Inflation (CPI & RPI) which is seen easing further towards the BoE’s target 2.0% undoing some of the fears of inflation being a knock-out clause leading to a rate rise. Producer Prices (PPI) are seen easing on both the Input and Output side. All not very supportive GBP. Outside that the main data is US Small business optimism and Chicago Fed Activity, with the former seen dropping a touch but the latter improving. A raft of ECB and Fed speakers could have a bearing on the EUR and USD.

 UK 100 still sideways in narrow 6700-6740 range, which itself remains within the falling trend from late October with resistance at 6760. More data and activity today may bring about a breakout. Heavy weight Vodafone (VOD) out with results this morning which showed weak growth due to tough European conditions, countered with news of  network investment, a 8% hike in interim dividend and confirmation of full-year guidance.

 In FX, USD basket rallied back above 81.2 overnight after a weak holiday session yesterday on the prospect of stimulus being tapered by the Fed. Resistance 81.6. Rising lows support 81.2.

 Note GBP/USD back below 1.60 due to stronger USD, with a test of 1.595, and close to the 2-month lows of 1.59.  Watch UK inflation data today which could drive the pair. EUR/USD hovering around 1.34 with pressure from stronger USD and recent rate cut. Well off recent highs of 1.38, but a way to go before September lows of 1.31.  Note USD/JPY back up above 99.5 and gunning for the 100 mark last seen in mid-September.  That USD is strong.

 Gold still under pressure making new low of $1282 due to strong USD, a factor of potential stimulus withdrawal and economy being able to withstand it, and thus less need for safehaven. Falling multi-month resistance at $1350 is a way off now, and while a revisit to $1250 is very much possible, so is the possibility of a brief low quality rally.

 Oil supported by prospect of an Iranian nuclear resolution fading, offsetting the stronger USD. Brent Crude more receptive than US Light Crude, the latter flat while the former continues to rebound from recent lows.

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